Strategic Management(3YPT)

Strategic Planning

Dr. B. K. Mukherjee 2

Strategic Planning

Markets today are a far cry from the days of Henry Ford, Sr. (“They can have it any colour, so long as it is black”).

A key factor that decides the success or failure of business at the marketplace is the competitive edge it enjoys over its competitors. This calls for careful planning.

Why plan? To take advantage of opportunities. Anticipate the keys for solving future problems. Develop courses of action (Strategies and Tactics). Computerize the risks of various options. Foster organizational learning. Impose odds of attaining goals (Probability, Productivity,

Innovation, Change, etc.)

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Competitive Strategy

NOTES ON MICHAEL PORTER’S COMPETITIVE STRATEGIES

(‘Competitive Strategy: Techniques for Analyzing Industries and Competitors’, 1980)

Competitive advantage grows fundamentally out of value a firm is able to create for its buyers that exceeds the firm’s cost of creating it. Value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset a higher price. There are thus two basic types of competitive advantage: Cost leadership and Differentiation.

Goals indicate what a business unit wants to achieve. Strategy is a game plan for getting there, eg. Marketing

strategy, Technology strategy, Sourcing strategy, and so on.

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Porter’s Generic StrategiesProf. Michael Porter has suggested three Generic strategies: Overall Cost Leadership: The business works hard to achieve the

lowest costs in production & distribution, service, R&D, etc. so it can price lower than its competitors and win large market share. Firms must be good at Engg., Purchasing, Mfg, and physical Distribution. However, problem is that other firms will compete with still lower costs (eg. FDC).

Product Differentiation: The firm comes up with a unique product in the market. Concentrates on achieving Technological superiority/ Specialized skills/Innovations that enables it to offer superior performance in an important customer benefit area valued by a large part of the market. Quality leadership by using best components, put them together expertly, inspect them carefully and effectively, communicate their quality, eg. Intel Corp (Microprocessors) and NOKIA (Cell phones) introducing new products at breakneck speed.

Focus: On one or more narrow market segments. The firm gets to know these segments intimately and pursues either cost leadership or differentiation within the target segment (eg., Pet foods/Pet products/ Pet parlours).’Pedigree’/’Nutripet’(standard),‘Propac’/’Purine’(premium), ‘Royal Canin’/’Eucanoba’(super premium).

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The Competitive edge In order to succeed, companies need:a. Excellence: Thomas J. Peters & Robert H. Waterman, Jr., “In search of

Excellence: Lessons from America’s best run Cos.”Eight Characteristics of Excellent Management Practice

1. Bias for Action – Do it, Fix it, Try it. (Dynamism)2. Closeness to the customer – listen intently and regularly to the customer and provide quality, service and reliability in response to customer needs.3. Autonomy and Entrepreneurship – innovation and risk-taking as an expected way of doing things, rather than conformity and conservatism.4. Productivity through people – employees are seen as the source of quality and productivity.5. Hands-on, Value driven – the basic philosophy of the organization is well-defined and articulated.6. Stick to the knitting – stay close to what you can do well.7. Simple form, lean staff – structural arrangements and systems are simple, with small headquarters staff.8. Simultaneous loose-tight properties – centralized control of values, but operational decentralization and autonomy.

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The Competitive edge (contd.)

b. Innovation: Strong R&D efforts, leading to innovative products, processes and operations. This will help in both Cost leadership as well as Differentiation.

c. Anticipation: Effective forecasting and efficient Market Research, enabling the company to know in advance the emerging market trends and future customer preferences.

BUSINESS DRIVERS:

In order to enjoy the competitive edge companies have to be good in any or all of the following:

Operational Excellence – eg, case of the Toyota ‘zeros’. Product Leadership – through leading edge Technology and Innovation,

eg, 3M Corp.with more than 3000 new products introduced every year. NOKIA comes out with average one new model a week!

Customer intimacy – closeness to the customer that fosters brand loyalty, eg, Colgate, Amul.

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Business Strategic Questions

Question

What to sell and where

Why will people buy?

How will you be a Market Leader?

What makes your business hum?

Issue

Products/Risks/ Markets

Competitive advantage

Core Competence

Leading Drivers of business

Model

Igor Ansoff matrix

Michael Porter’s Generic strategies

Porter’s Value Chain

Noel Tracy & Fred Wiesen – Value driven